To that end, during the recession, Harman — whose branded car audio and premium infotainment systems have been designed primarily for the high-end auto market — turned to its Chinese and Indian R&D teams to help build a new, “clean sheet” mid-priced infotainment system. It was developed independently of any auto manufacturer, in record time, at substantially lower cost. The system can be incorporated into a new vehicle within a year, compared to the two to three years the process usually takes, speeding time-to-market and saving considerable expense. Lardon believes the new system will position his company particularly well to profit from the recovery in the auto industry, especially in Asia, whose auto markets have strong growth prospects.
The General Motors Corporation, despite all its struggles in the past year, is also looking to the future. As it came out of bankruptcy in the summer of 2009, the company had to significantly cut back on R&D, in part because it so radically slimmed down its brand lineup. Still, says Alan Taub, who as GM’s vice president of global research and development has responsibility for the company’s advanced research, “doing so gave us the opportunity to clean up our priorities. We’ve done that, and now we’re back to executing.” What Taub’s group is executing on, however, has changed as well. As GM looks to shift its cultural focus from products to consumers, Taub’s team is at the center of the cultural shift, working not just on the total vehicle experience, but also on how better to understand what GM’s customers want.
The ROI of Innovation
Despite the opportunities the downturn has opened up for stronger players, nearly every company has been affected by the slowdown in some way. Even those companies that have not cut innovation spending dramatically are trimming here and there, tightening management processes and reassessing their product development portfolios. More than 40 percent of the respondents to our survey said they have become more conservative in their approach to innovation, and 70 percent reported that they were adjusting their strategy to better capture changing customer requirements.
The goal for nearly all the R&D executives we spoke with is to improve the returns on their innovation investments, in both the short term and the long. More than 40 percent of survey respondents said their companies were focusing on process improvements to change R&D spend during the downturn, and a similar number reported that they were getting better at killing bad projects. More than a third of companies surveyed, for instance, said they were terminating more exploratory projects that lacked specific timelines, and more than 40 percent said their companies were focusing more on newer products that have the potential to grow faster. “For the past two or three years, we have been looking at our R&D portfolio, focusing on fewer, bigger ideas as opposed to lots of incremental little things,” says Kraft Foods’ Alan Grant. “What the recession has done is change the filters through which we view the portfolio. Which of these products might we bring to the front and which might we choose to backpedal on, given the challenging economic times?”
Or consider the case of Applied Materials, which faces an unusually difficult innovation environment. Thanks to the recession, quarterly revenues for all the top manufacturers of wafer equipment dropped by nearly 80 percent from their peak quarter in 2007 to their bottom quarter in 2009. As a result, nearly every company’s R&D spending has rapidly outpaced revenues, and now companies must either bring that R&D spending down dramatically or grow revenue quickly. Meanwhile, the pressure to innovate in the chip business keeps increasing as the size of semiconductors becomes ever smaller, and Applied Materials’ silicon group finds itself having to spend more and more money on R&D to get the same results.